In recent years, legal video streaming services such as Netflix, HBO, and Amazon have flourished.

At the same time, millions of people are also streaming from unauthorized sources, often associated with perfectly legal streaming platforms and devices.

This mix of legal devices and illegal supplements is a challenge for law enforcement. Platforms such as Kodi, Plex, and Roku are perfectly legal but can also be configured to access pirated content.

A few years ago, Kodi found itself at the center of this add-on controversy. The creators of the software have always steered clear of illegal activities, but third-party sellers beyond their control have marketed “fully loaded” Kodi boxes as ideal tools for piracy.

This ultimately resulted in several court case where sellers of preconfigured boxes were found guilty of copyright infringement. The legal campaign was supported by numerous Hollywood studios as well as Netflix. They’ve argued that illegal streaming boxes hurt their revenue, but new research suggests that may not always be the case.

Do pirate boxes harm rights holders?

The pirate streaming box controversy has inspired researchers at the University of Delaware and the University of North Carolina at Chapel Hill to find out how these devices are actually changing people’s consumption and spending habits.

“The lawsuits filed by content providers and MSOs suggest that Kodi-ready streaming boxes have facilitated piracy and had a significant impact on the profitability of content production and distribution. Yet, as has been the case with many past piracy damage claims, there was no direct empirical evidence to demonstrate economic harm,” they write.

To obtain empirical evidence, the researchers drew on panel data from 10,337 households, which captures a wide range of spending and consumption habits. This data includes Internet and TV usage reports as well as billing records for a sixteen month period spanning 2017-2018, when Kodi-powered streaming boxes were largely used.

The data allowed researchers to compare habits before and after purchasing a Kodi-powered box. It is not a perfect proxy for hacking as the devices can also be used for legitimate purposes. However, the article points out that previous research has shown that two-thirds of box owners have pirate modules installed.

No more Netflix, no more YouTube, no more piracy

When one simply compares households that have a Kodi box to those that don’t, it becomes clear that there are big differences between the two groups. Box owners generate significantly more internet traffic on average and spend more time streaming through Netflix, Amazon, YouTube, Twitch and other platforms.

This discovery is not particularly surprising or insightful. What happens to households after they buy a Kodi box first, that’s what the researchers really want to determine. Here, the data paints a compelling picture.

After adoption of Kodi, total household internet usage increases by 2.88 gigabytes per day. Much of this traffic is generated by Netflix (0.52 gigabytes) and YouTube (0.57 gigabytes). No significant increase was seen for Amazon Video and Hulu.

As expected, there has also been a significant increase in the categories of traffic typically associated with piracy.

Interestingly, traffic to streaming content from traditional network channels is also increasing. According to the researchers, this suggests that households can use the box to replace the viewing that would otherwise take place via a regular TV connection.

Lower bills

Kodi adopters also change their consumption habits after buying a box. They saved less money on TV subscriptions and more on their internet bills as they upgraded to higher tiers. This corresponds to what is expected of cable cutters.

“Kodi adopters spend 4.2% more on Internet services than non-adopters. Including household fixed effects, we estimate an additional 3.1% reduction in monthly TV payments among TV subscribers and 0.9% of monthly Internet payments among Kodi users after the adoption date,” the researchers write.

Overall, this suggests that the total monthly bill for Kodi users decreases by 1%. This means less revenue going to third parties. However, the researchers warn that this may not translate to an overall decline in profits, as TV margins tend to be lower than Internet margins.

Does piracy benefit businesses?

Overall, the study shows that piracy can have both positive and negative effects on the wider economy. And this form of “pirating” streaming boxes can even help major rights holders, including Netflix.

“Many large SVOD services, including Netflix, appear to have benefited from the adoption of Kodi despite supporting lawsuits alleging damages,” the researchers write, adding that internet companies are also seeing increased revenue and profits. .

On the other hand, many broadband companies also generate profits by selling TV subscriptions. So whether they make more or less profit overall depends on the margins they have for each business. Or as the researchers put it:

“With respect to harm to MSO, the observed decline in revenue corresponds to a decline in profits only if the margin associated with lost TV revenue is large enough to offset the margin associated with increased Internet revenue.”

The study provides valuable insight into the problem of streaming piracy. While lawsuits and other lawsuits have all but ended the Kodi piracy add-on problem, this research will help put future waves of piracy into perspective.

A copy of the article “The Impact of Video Piracy on Content Producers and Distributors” by Zachary Nolan, Jonathan Williams and Haoran Zhang is available here (pdf). This is a working paper that has not yet been peer reviewed